The number of job openings in the U.S. fell to a two-year low in December, but whether this is a sign of a softening economy or a reflection of a tight labor market is debatable.
The number of job openings fell 364,000 to 6.4 million on the last business day of December, the U.S. Bureau of Labor Statistics reported today. That was below economists’ expectations for 6.75 million and represents the second consecutive monthly decline. Compared with a year ago, job openings are down 14 percent.
Hiring has not slowed. The U.S. added 225,000 new jobs in January, 147,000 in December, and 261,000 in November. The number of hires in December was basically unchanged from the previous month and unemployment has remained at very low levels, between 3.5 percent and 3.6 percent, for months.
So why are job openings declining? One possibility is that employers are increasing on the job training to increase worker productivity rather than opening new positions. That would make sense in a tight labor market where many employers say they are having trouble finding enough workers.
A more worrisome possibility is that employers could be becoming less optimistic about economic growth in the months ahead.
Evidence for the tight labor market explanation comes from the very low ratio of unemployed people to job openings. In January of 2018, this became fractional, meaning there were more openings than unemployed people. That’s still the case even with the declines in openings in November and December.
Openings and hires are down in manufacturing but the ratio of unemployed people to openings remains extremely low.
What’s more, layoffs remain scarce even in manufacturing, which certainly suffered a slump last year as global economic growth slowed. The quits level remains well above the level of layoffs, also a positive signal.
Taken together, these data points support the notion that the lower level of openings in the economy is not a sign of distress but a sign that businesses are looking outside of expanding their payrolls to grow.